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Fast Action – Turning Coal Into Diamonds

The traders think coal stocks may be among the big movers next week.

How can you use options to turn coal into diamonds? Find out from Options Action trader Stacey Gilbert!

Gilbert suggests looking at Massey which reports earnings next week. "Here's a stock where the implied volatility is on the lower side. If you look at what the options market is pricing in -- in terms of the upcoming earnings -- it's almost half that of what we've seen over the last several quarters. To me that makes it much more attractive, from the perspective of volatility."

Gilbert goes on to say she thinks Massey has potential upside - because of it's exposure to metallurgic coal and a strong presence overseas.

"I'm a buyer of the November 31 calls," she says. "They were offered at $2.30 when I bought."

STACEY GILBERT'S TRADE
Massey Energy - Stock at $31.00
Buy Nov 31-Strike Call For $2.30

HOW'S GILBERT'S TRADE MAKES MONEY
Massey Stock
Profits above $33.30
Losses Below $33.30

"The break even is if the stock trades above $33.30," Gilbert explains. "If Massey does have a big upside move around earnings, you don't have to hold until expiration. You have the volatility component and I believe you're getting that volatility component at an attractive level.

So there are two plays here, attractive volatility and a bullish upside.




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Trader disclosure: On Oct. 23th, 2009, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Finerman's Firm Owns (BKS) Puts, Is Short (BKS); Finerman's Firm Owns (MSFT); Finerman's Firm And Finerman Own (PDE); Finerman's Firm And Finerman Own (RIG); Finerman's Firm Owns (WLP) Calls; Finerman's Firm Is Short (IJR), (MDY), (SPY), (IWM), (USO), (UNG); Finerman's Firm Owns (AET) Calls; Finerman's Firm Owns (UNH) Calls; Finerman's Firm Owns (BCR; Finerman's Firm Owns (STJ); Seymour Owns (FXI); Seymour Owns (EEM); Seymour Is Short (PBR); Grasso Owns (AAPL), (ABK), (ASTM), (BAC), (BGP), (C), (COST), (PRST), (V), (WMT), (FAZ); Terranova Owns (WYNN); Terranova Is Short (AXP), (POT), (OIH), (FCX)

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